Daishin Securities said on the 18th it would maintain a "Buy" investment opinion on SK Square, reflecting the rise in SK hynix's market capitalization and expectations for further gains, and raise the target price by 25% to 1.87 million won. SK Square's previous closing price was 1.596 million won.
Daishin Securities said it calculated SK Square's target price by applying a 34% discount to net asset value (NAV). The previous discount rate was 31%. Since its partitioning and new listing in 2021, SK Square's discount rate has ranged from 40% to 77%, with an average around 66%.
Kim Hoe-jae, an analyst at Daishin Securities, said, "We reflected the increase in SK hynix's market capitalization, which accounts for 98% of NAV, and expectations for further gains."
In particular, it said the target discount rate on SK Square's NAV was linked to the premium/discount on the target price-to-book ratio (PBR) of SK hynix's target price.
It explained this is because SK hynix has a high weight in SK Square's NAV, and under the 10% cap on a single stock inclusion limit, SK Square has a strong nature as an alternative investment in SK hynix.
It also revealed expectations for SK hynix's dividends, share repurchases and cancellations, and the issuance of depository receipts (DR).
Kim said, "If SK hynix's earnings rise, dividend inflows to SK Square will also expand," adding, "This year's expected dividend inflow to SK Square is 990 billion won, and next year's is 1.7 trillion won."
It also said that if SK hynix carries out share repurchases and cancellations, a rise in SK Square's share price or cash inflows is expected.
Kim explained, "If SK hynix uses a certain amount of free cash flow (FCF) for share repurchases and cancellations, SK Square's share price is expected to rise in tandem with the increase in SK hynix's share price," adding, "Alternatively, direct cash inflows to SK Square are also possible."
It analyzed that if DRs are issued, the valuation in the United States would be applied to SK hynix and then to SK Square, making a share price increase possible.